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TMI Blog2016 (3) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... ter "the Company"), one of the leading and well known transporters in India at some point of time was incorporated in 1949. The balance sheets of the company as on 31.12.1966 reflected losses. This led to the company facing financial difficulties and several winding-up proceedings were filed by its creditors. The balance sheet for the period ending December 1966, reflected substantial assets of the company valued at Rs. 21,18,319.37/-. These assets were vehicles, buildings, rented buildings, godowns and other buildings, furniture and realizable outstanding amounts and advances. Several applications were moved under Sections 391 and 392 of the Act, proposing Schemes of Arrangement. Ultimately, by order dated 26.05.1978, the Scheme of Arrangement (hereafter "the Scheme") was accepted with certain modifications, proposed by one Pritam Singh in C.A. 444/1974. Consequently, all winding-up petitions were adjourned sine die and were to be revived if the Scheme failed. The Court granted liberty to the parties and others interested in the Scheme to apply to it for directions necessary to implement it. When the winding-up proceedings were pending, on 21.01.1972, the Company Board superseded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts The creditors will not have the right to interfere in the day-to-day work of the Company." 6. The appellants argued that the sanctioned Scheme overrides all contracts and had statutory effect; it modified the subsisting contracts between the company, its creditors as well as contributories. The rights and liabilities of company creditors as long as the Scheme was operational, was regulated by it. Consequently, the jurisdiction of the Civil Courts to adjudicate on disputes were overridden. It was also contended that the words "any claim" in para 8 referred to all claims by or against the company; the Scheme, therefore, made no distinction between ordinary civil disputes and those which fell within the exclusive jurisdiction of the Company Court. Thus, even disputes raised by third parties fell within the contemplation of the Scheme and were covered under Section 392. Furthermore, the applicants urged that Schedule-A and Schedule-B of the order dated 26.05.1978 itself had specifically mentioned the properties; consequently, any dispute pertaining to these properties were to be adjudicated exclusively by the Company Court and no other forum. The company had relied upon a previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnection with the company except as previous landlords, could not be prejudiced in a proceeding before the Company Court as it was plainly without jurisdiction. The respondents relied upon Union of India v. Asia Udyog Pvt. Ltd. 1974 (44) Comp. Cas 359 as well as the decision in Anand Finance Pvt. Ltd. v. Ram Lal Anand 1977 (2) ILR (Del) 457. 7. The learned Single Judge, in the impugned judgment, was of the opinion firstly that Section 446(2) conferred limited jurisdiction upon the Company Court to adjudicate all claims against and by the Company after, and only after a winding-up order was made. The mere pendency of winding-up proceedings, concluded the learned Single Judge, would not empower the Court to exercise such jurisdiction. Thereafter, the learned Single Judge analyzed the provisions of Sections 391/392 and the purpose and objective of these provisions. The impugned judgment thereafter discussed the matter as follows: "......................Whether this power would carry in its sweep the power to adjudicate the claims of the company against third parties who were not parties to the scheme sanctioned? Relying upon the expression "any matter" occurring in Section 392(i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e view, though this judgment was rendered before the pronouncement of the Supreme Court judgment in S.K. Gupta (supra). 38. Therefore, if one has to go strictly as per the provisions of the scheme, the scheme would bind only different categories of shareholders, different categories of creditors as well as the company in question. The respondents in all these applications were not parties to the proceedings when the scheme of the propounder was sanctioned. 39. It may be, as contested by learned counsel for the Administrator and the applicants/propounder, that for proper functioning of the company, retrieval of these properties of which the company was the tenant is necessary. However, in the facts of this case the proper remedy for the company would be to file appropriate civil proceedings against the respondents in Civil Court. Application in proceedings under Sections 391-394 of the Act may not be proper inasmuch as the scheme is binding only on the parties and the respondent in all these applications were not the parties when the scheme was sanctioned. Thus, the respondents may have valid defence which will have to be adjudicated upon in appropriate proceedings. It is becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. (2) If the Tribunal aforesaid is satisfied that a compromise or an arrangement sanctioned under section 391 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up the company, and such an order shall be deemed to be an order made under section 433 of this Act. XXXXXX XXXXXX XXXXXX 446. SUITS STAYED ON WINDING UP ORDER (1) When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the [Tribunal] and subject to such terms as the [Tribunal] may impose. (2) The [Tribunal] shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conferred power of widest amplitude on the High Court under s. 392 not only to give directions but to make such modification in the compromise and/or arrangement as the Court may consider necessary, the only limit on the power of the Court being that such directions can be given and modifications can be made for the proper working of the compromise and/or arrangement. The purpose underlying s. 392 is to provide for effective working of the compromise and/or arrangement once sanctioned and over which the Court must exercise continuous supervision[see s. 392(1)], and if over a period there may arise obstacles, difficulties or impediments, to remove them, again, not for any other purpose but for the proper working of the compromise and/or arrangement. This power either to give directions to overcome the difficulties or if the provisions of the scheme themselves create an impediment, to modify the provision to the extent necessary, can only be exercised so as to provide for smooth working of the compromise and/or arrangement. To effectuate this purpose the power of widest amplitude has been conferred on the High Court and this is a basic departure from the scheme of the U.K. Act in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then supervising the Scheme), seeking leave to sue under Section 446 of the Companies Act. The Division Bench rejected the application holding that no winding-up proceedings were pending. The Supreme Court, in the course of its judgment analyzed Section 446(2) as follows: "Sub-sec. (2) of Sec. 446 confers jurisdiction on the court which is winding up the company to entertain and dispose of proceedings set out in clauses (a) to (d). The expression "court which is winding up the company" will comprehend the court before which a winding up petition is pending or which has made an order for winding up of the company and further winding up proceedings are continued under its directions. Undoubtedly, looking to the language of Sec. 446 (1) and (2) and its setting in Part VII which deals with winding up proceedings would clearly show that the jurisdiction of the court to entertain and dispose of proceedings set out in sub-cls. (a) to (d) of sub-sec. (2) can be invoked in the court which is winding up the company." Later, the Court held that since the winding-up order was neither, "quashed, set aside, cancelled, revoked nor recalled" but merely "kept in abeyance", it was in a state of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislature in India has given such a power to the courts; and such power can be exercised only to order those minimal modifications that would bring the aspect that is not working into a functional zone, with the proviso that at any rate such a modification cannot lead to a change of the "basic fabric" of the Scheme." 17. This Court's decision in Asia Udyog (supra) also noticed the limitations of Section 392 proceedings: "20. While it is no doubt true that the extent of the power of the court under Section 392(1) of the Act of 1956 is much wider than that of Section 153A(1) of the Act of 1913, the grant of relief to the petitioner by direction to the respondent No. 1 to pay the petitioner the amount claimed by it would not be justified even with reference to the provisions of this section because it could not be said that in directing payment of the amount claimed by the petitioner the court was either supervising " the carrying out of compromise or arrangement" as contemplated by Clause (a) of the said sub-section or by taking any steps " for the proper working of the compromise or arrangement" as envisaged by Clause (b) of that sub-section. This appears to be so because the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im from the premises; it also sought damages for unlawful occupation. The Court held that since the first relief was spelt out in the scheme, he had to be evicted and issued an order to that effect. However, as regards the second relief, it was held that proceedings under Section 392 were not maintainable, noticing that such claims could be tried only under Section 446 upon application of certain preconditions, all of which were absent, because of the existence of a compromise and arrangement and not of a winding up order: "None of these conditions is present. At one stage the winding up petition was pending but never a provisional liquidator was appointed. No winding up order has been made. The company can pursue its legal remedy in the ordinary way in a civil court." 18. The Scheme as propounded originally read as follows: "8. That the Company Court shall have the exclusive jurisdiction regarding the disputes between the Company, the creditors, contributors and the propounders regarding the recoverability of the amount and the interpretation of the of the Scheme. No action, settlement and compromise etc. of the Company shall be questioned in any other Court except the Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the scheme which bring me to the question that if I approve the scheme what changes I should make. I think I will proceed on the basis that this scheme cannot be rejected by me because without it there is little likelihood of anything being salvaged for the creditors. The only portion of the scheme that I find unworkable is the one which gives the Company Court exclusive jurisdiction regarding the disputes between the Company's creditors, contributories and propounders, i.e. Clause No.8. I think, this Clause has to be altered to read as follows:- "That the Company Court shall have jurisdiction regarding the disputes between company's creditors, contributories and propounders regarding the amounts to be recovered under the scheme and the interpretation of the scheme. Any claim by or against the company shall be instituted before the Company Court. However, the Company Court will be free to direct the parties to get the matter decided in the ordinary civil court if it is found that the matter cannot be decided by the Company Court either because of its complexity or because it requires a trial on facts. The creditors will not have the right to interfere in the day-to-day work of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previously in this judgment show that the power to modify a sanctioned scheme is essential for removing unanticipated obstacles and for its smooth functioning. The company, it must be noticed, was not facing winding up; no orders were made. Undoubtedly, certain interim orders were made during the pendency of winding up proceedings, to protect the properties of the company, including the tenancies, which inured in its favour. Some of these tenancies were in Delhi and others were in Gujarat and Amritsar. Those tenancies were surrendered, pursuant to eviction decrees issued by competent Courts/Tribunals. New tenancies were created in those premises by the landlord; according to the appellants, those tenancies were sham and fraudulent, because the occupants were connected with the erstwhile directors of the company, who were responsible for its plight. The appellants argued that the tenancies were given up due to collusion of directors and landlords. They also argued that the decree for possession in some instances were executed, contrary to an injunction, which was operative during the pendency of winding up proceedings. 21. What in effect the appellants urge is that the Company Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en described by the Supreme Court in D.R. Venkatachalam & Ors v. Dy. Transport Commissioner AIR 1977 SC 842 as applying in the following manner: "to cases where there is a single specified mode laid down for doing something in exercise of the legal power to do it. In that event, the specified mode-may, negatively, operate as a prohibition against what is not prescribed at all and is outside the statute." 23. The other feature peculiar to this case is that the power of the Company Court to decide upon matters and disputes which do not directly relate to its jurisdiction, apart from being limited in its operation to what is expressly stated in Section 446, is also excluded in relation to matters and causes which are to be tried by Tribunals and Courts of exclusive jurisdiction. Thus, it was ruled in Indian Bank v Official Liquidator 1998 (5) SCC 401 that even under Section 446, the Court does not possess the power to set aside the order of a tribunal constituted under a rent control legislation. The Court observed as follows: "12. ... We wish to make it clear that under Section 446, no power is conferred on the Company Court to declare a decree of the competent court void- a pra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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